TD SYNNEX CEO sees growth opportunity as vendors favour global, end-to-end distributors
Patrick Zammit explains the drivers of 31 per cent revenue growth and the opportunity for HPE and Dell partners
TD SYNNEX is seeing broad-based demand across its distribution and Hyve hyperscale infrastructure businesses, with CEO Patrick Zammit highlighting strong execution, disciplined cost management and a favourable market backdrop as key drivers behind the distributor’s second-quarter results.
In a wide-ranging interview shortly after TD SYNNEX released its Q2 FY26 financial results, Zammit tells CRN that the distributor grew at roughly twice the pace of the market while maintaining margin quality, helping to drive what he described as “an incredible 60 per cent EPS [earnings per share] growth.”
Zammit says price increases have so far had only a limited impact on growth, with 300 to 400 basis points tied to average selling price increases and pull-ins, but he warns the pressure is likely to intensify in the coming quarters as component costs work their way through the supply chain.
“We are not out of the woods, and we should expect another wave of price increases in July,” he says.
Despite those pressures, Zammit explains that demand from the channel remains resilient, particularly as end customers continue to invest in AI, datacentre modernisation, Wi Fi 7 networking and infrastructure refreshes.
TD SYNNEX has increased distribution inventory to help customers manage the transition, a move Zammit says was designed to “smooth the transition with ASP increases” and support partners as vendors raise prices.
Zammit also discusses TD SYNNEX’s expanding strategic position with hyperscalers and vendors via its Hyve digital infrastructure business.
He also discusses Amazon’s warrant agreement with TD SYNNEX as a vote of confidence in the distributor’s execution and long-term role in hyperscale infrastructure, saying Amazon would make such a move only if it believed TD SYNNEX was “a reliable partner for the long run.”
On the traditional distribution side, Zammit points to TD SYNNEX’s selection as one of two HPE global distributors, as well as Dell’s decision to end its Arrow ECS relationship, as signs that vendors are increasingly favouring distributors with global scale, technical specialisation and end-to-end portfolios.
“If you are not end to end with some of the vendors who play in these markets, you are at risk,” he says.
There’s a lot going on with distribution and at TD SYNNEX. To learn more, read CRN’s discussion with Zammit.
What’s your big takeaway from TD SYNNEX’s second quarter?
“We started with a good market environment.
“I think it’s important to speak about it.
“When I look at demand, it’s strong both for Hyve and for distribution.
“When you look at distribution, it's strong across all the regions, and it’s strong across all the technology. It’s a broad-based healthy demand.
“That’s encouraging. Lots of tailwinds. Many of them will continue in the future.
“I talked about PCs, [the one area] where we’ll probably see a unit decline, but with ASPs [average selling prices] increasing, I think in revenue it’s going to be fine.
“Second, in this market environment, we did very well. We grew at about twice the pace of the market, which is quite remarkable because we have a high [revenue] base, so that was impressive. The team did a fantastic job.
“Also, we didn’t do it at the expense of the margin quality, which means that the discipline, the focus on the mix is paying off.
“Our costs are very well managed, and so the vast majority of the GP [gross profit] increase goes to the bottom line, which explains why we had an incredible 60 per cent EPS [earnings per share] growth.”
TD SYNNEX reported 31 per cent revenue growth over last year. How much of that was due to price hikes from the vendors as opposed to increased unit sales?
“We are trying to distinguish between increase in units and increase in prices. We think that only, let’s say, 300 to 400 basis points of the growth is explained by both ASP increases and pull-ins.
“We should not forget there are a lot of categories with no price increase or very little: software, public cloud and so on. It’s relatively limited. Networking was relatively limited.
“You’re talking primarily about server, storage and PCs where we see increases.
“Second, I think the impact of price increases is going to become more meaningful in the coming quarters. The reason is it takes some time. We hold inventory. Our resellers hold inventory.
“Price increases take some time to hit the market. The impact is increasing. We had very little in Q1. Q2, it was more significant. I think Q3 will be even more significant.
“In the categories with the biggest price increase, most of it was related to the component cost increase.
“But let’s not forget that the vendors also are allocating their memory, for instance, to the midrange and the higher range of their product portfolios, and so that also drives prices up.”
You’re expecting the third quarter will probably be even more difficult in terms of pricing because of components and what’s going on the manufacturing side. When do you expect to see relief?
“I’m looking at what our vendors are sharing with us, the component vendors in particular, and the consensus at the moment is that the situation will last until at least the end of the first half of 2027.
“Some vendors are even more pessimistic and saying that it’s going to be through the whole of 2027 and potentially even 2028.
“We are not out of the woods and we should expect another wave of price increases in July.”
TD SYNNEX’s business is divided into traditional distribution and its Hyve hyperscale digital infrastructure business. When you look at component shortages and availability, do they impact Hyve and distribution differently? Does either side have better access to these components?
“First, in Q2, we didn’t really suffer from shortages.
“Second, in fact, and it may surprise you, but when it comes to Hyve, it’s the hyperscaler customers negotiating the quantities and the price with the component manufacturers, not us.
“Obviously, they have their negotiating power. On the distribution side, we take care of it.
“We haven’t been confronted by a major shortages issue. No issues came to me. No escalation.
“We’ll see in Q3 how it goes. Our guidance assumes some constraints. We’ve been a little bit cautious in our guidance because of that, but yes, we’ll see.”
TD SYNNEX’s Hyve business has programmes with all five of the major hyperscalers, and more than one programme with a couple of them…
“In fact, with three of them, we have more than three programmes running.”
When you say ‘programme,’ what do you mean?
“It’s a rack of compute. It’s a rack of networking.”
As part of that, last month TD SYNNEX granted Amazon a warrant to acquire up to 3,238,066 shares of its common stock. What’s behind that?
“The vesting of the warrants is linked to them doing a certain level of business with us.
“It means that they believe that we are a reliable partner for the long run.
“They only do those type of things if they believe in your value proposition and the quality of the execution. Otherwise, they won’t do it.
“Second, if they want to get the full benefit, they have to place the orders with us and so it gives us a high level of confidence that the business relationship with Amazon is going to continue to grow going forward.
“Of course, in return they believe that they will contribute to the growth of our profitability, and if they do it will result in the increase in the share price. That’s their bet. It’s a win-win for both parties.”
Will you do this with other hyperscalers?
“No. I think it’s something Amazon has developed for many years.
“By the way, we are one of the last contract manufacturers to sign this warrant. Jabil and Flex already had it, but I’m not aware of any other hyperscaler taking a similar approach.”
On the distribution side, are average selling price increases hurting demand or not?
“From the channel, not yet. As I said, we grew units across the whole portfolio, so I would say no.
“Then, to be a little more specific, if you look at our guidance for Q3, our assumption is that PC unit sales will decline a little bit.
“There are some forecasts coming from analysts. But we only play in B2B, and we think that in B2B the elasticity is lower.
“Second, we plan to continue to grow share. We are planning for a decline, but the decline should be less than that of the overall market.
“When you look at networking, the networking business is back.
“Lots of investments: upgrading Wi‑Fi networks with Wi‑Fi 7, upgrading the datacentre switches to be optimised for AI.
“You have a whole refresh happening as we speak. And I think storage and compute in the datacentre will continue to benefit from datacentre modernisation and AI.”
Are those price increases changing buying patterns at all?
“I look at my pipeline and my backlog, and I would tell you, no. It’s not obvious for the moment.
“We are very vigilant. I’m meeting with our customers to get more insights, but so far we haven’t seen any major change.
“End users have to invest in AI. They don’t have a choice.
“Yes, we’ve had those big price increases. On the other hand, if you ignore agentic AI, you may not be competitive. So I think everybody has to invest now.”
Is TD SYNNEX’s inventory on the distribution side increasing or decreasing?
“It has increased because we anticipated the price increases and we wanted to be in a position to support our customers.
“We can smooth the transition with ASP increases, thanks to our inventory. We’ve done it now for two or three quarters, and we continue to do it.”
Do you expect inventory in the third quarter to rise above second-quarter levels?
“That I don’t know. It depends how we see Q4.
“But yes, we ended the quarter with a high inventory, and we are very comfortable with it. We think it’s going to help our customers.”
TD SYNNEX was recently named as one of two HPE global distributors. What does that mean for TD SYNNEX and your HPE channel partners?
“For us, it’s great news. Let’s put it in context. More and more vendors are revisiting their go-to-market.
“They are revisiting the number of partners they want to serve direct, and they are revisiting the number of distributors they want to keep in their portfolio.
“I think HPE would like to do that globally. They believe that engaging with global distributors, TD SYNNEX and Ingram Micro, is going to facilitate the management of their channel strategy. That’s the context.
“The results for us more specifically are that we are going to be franchised in countries where we are not now franchised, in Europe, in APJ in particular.
“It means we will get access to the Juniper product portfolio. It means we have the possibility to win some of the business of the distributors who will be terminated. For us, it’s a win.
“It’s a win for HPE, which simplifies its go-to-market, especially in dealing with a global business. And for us, it’s a win because it opens new opportunities for growth globally.”
Also, did you see CRN**’s reporting that Dell is ending its Arrow ECS relationship**?
“I was surprised that you mentioned the fact that Arrow not being a PC distributor was part of the decision, and so that’s very interesting.
“Basically, that reinforces our strategy. Many years ago, we declared that we wanted to be an end-to-end distributor.
“The reason at the time was that we felt that our customers had to deliver business outcomes, so we had to be in a position to offer the full portfolio.
“When I took over as CEO, I mentioned that in Europe and North America we were already there with this end-to-end strategy, but in Latin America and APJ we needed to accelerate the execution of the strategy.
“Basically, Dell’s decision with Arrow is just reinforcing the strategy. It’s an interesting decision, but it’s also a message sent to the market that if you are not end to end with some of the vendors who play in these markets, you are at risk.”
Is TD SYNNEX looking to compete for the business of channel partners who may not be able to work with Arrow on the Dell side?
“Dell’s partners have to find a new place.
“Some of them will go direct, but many of them will look for another distributor, especially as Dell has also rationalised the number of partners they want to serve direct. So it’s an opportunity for us. Let’s be clear.”
To be sure, TD SYNNEX continues to be a Dell distributor going forward, right?
“Absolutely. We’ve been a strategic partner for Dell for many years. We won the Distributor of the Year award, and so on.
“We’ve had a long-term, close relationship. The Dell relationship is strategic to us, and we were very pleased to be reconfirmed as a distributor.
“We have a good market position, and we think we are well positioned to support the resellers who are looking for a new distributor.”
This article originally appeared on CRN UK sister website CRN.